Natrip Implementation Society vs Ivrcl Limited
2016 Latest Caselaw 5701 Del

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*       IN THE HIGH COURT OF DELHI AT NEW DELHI
+       ARB. A. (COMM.) 21/2016 & IA No.8600/2016
        NATRIP IMPLEMENTATION SOCIETY              ..... Appellant
                       Through: Mr Sanjay Jain, ASG with Mr Ravi
                                   Varma, Ms Natasha Thakur and Mr
                                   Suadat Ahmad Kirmani, Advocates.
                       Versus

        IVRCL LIMITED                                   ..... Respondent
                          Through:     Dr Amit George, Advocate.

        CORAM:
        HON'BLE MR. JUSTICE VIBHU BAKHRU
                     ORDER

        %            31.08.2016

VIBHU BAKHRU, J

1. The appellant (hereafter „NATRIP‟) has filed the present appeal under

Section 37(2) of the Arbitration and Conciliation Act, 1996 (hereafter 'the

Act') impugning the order dated 21.05.2016 passed by the Arbitral Tribunal

(hereafter 'the impugned order').

2. By the impugned order, the Arbitral Tribunal (hereafter „the

Tribunal‟) had rejected NATRIP's application dated 22.04.2016 whereby it

had prayed that the amounts claimed by it in its counter claim be secured by

way of sufficient security or by bank guarantee.

3. NATRIP had invited bids for construction of Automotive Test Tracks

at Natrax - Pithampur and GARC - Chennai (hereafter 'the project'). The

tracks at GARC - Chennai and Natrax -Pithampur were to be completed by

September 2011 and September 2012 respectively.

4. The respondent (hereafter „IVRCL‟) was successful in the bidding

process and was accordingly awarded the contract for execution of the

project. The negotiated value of the contract was `525,97,06,879/-.

Admittedly, the execution of the contract was delayed. According to

NATRIP, IVRCL had failed and neglected to perform the contract despite

several notices.

5. In the circumstances, NATRIP issued notices calling upon IVRCL

to remedy the breaches, failing which NATRIP would be entitled to

terminate the contract without prejudice to its other rights and remedies.

IVRCL also issued notices, inter alia, alleging that the delays were on

account of NATRIP. NATRIP alleges that IVRCL did not resume

construction activities and took no steps to remedy the defaults;

consequently, NATRIP issued a letter dated 14.08.2013 terminating the

contract. NATRIP further states that thereafter, it issued a tender for the

balance works under the contract at the risk and cost of IVRCL. IVRCL

has its own tale of woe and inter alia alleges that the delay in execution

of the project is on account of NATRIP and the termination of contract is

wrongful. IVRCL invoked the arbitration clause. Thereafter, the Tribunal

comprising of three members including a former judge of this Court was

constituted. IVRCL filed its claim before the Tribunal for an aggregate

sum of `2,13,79,04,238/- which was later amended to `415,27,61,238/-.

NATRIP also filed its counter claim for a sum of `79,23,511,669/- which

was subsequently increased to `871,05,74,323/-.

6. The Arbitral proceedings are currently at the stage of final hearing.

The arguments on behalf of IVRCL have been concluded and the

arguments on behalf of NATRIP would have commenced on 26.08.2016.

However, the hearings scheduled on 26.08.2016, 27.08.2016 and

29.08.2016 have been adjourned at the instance of the learned counsel for

NATRIP. At the stage of final hearing, NATRIP filed an application

dated 22.04.2016, inter alia, praying that IVRCL be directed to provide

security for the amount claimed by it.

7. In its application, NATRIP, inter alia, pleaded that certain contracts

entered into by IVRCL with other agencies had been terminated on

account of failure on the part of IVRCL to perform those contracts. It

was also pleaded that a flyover in Kolkata had collapsed on 31.03.2016

and this was due to "the non-performance due to financial stringency of

the IVRCL". It was further pleaded that the financial condition of IVRCL

was precarious and it was currently under SDR (Strategic Debt

Restructuring) under which all expenses of IVRCL were to be approved

by representatives of the lenders. It is also stated that three winding up

petitions against IVRCL had been admitted and citations had been

published. NATRIP claimed that in the given circumstances, it would not

only be extremely difficult but impossible for NATRIP to realise the

amount of counter claim from IVRCL in the event NATRIP succeeded

before the Tribunal.

8. The Tribunal rejected the application principally on the ground that

the Arbitral proceedings were at a final stage. The Tribunal observed that

the case was a highly contested one and both parties had made allegations

and counter allegations. The Tribunal held that at the stage of final

hearing, it was neither possible nor advisable to take a prima facie view

of the matter in favour of NATRIP as the Tribunal was of the view that

the same would amount to pre-judging the case and would be prejudicial

to the outcome of the decision on merit.

9. The Tribunal further held as under:-

"....Since we are not able to determine with certainty the existence of prima facie case in favour of the Respondent in the sense that the Respondent is likely to succeed in counter claims, we refrain from commenting on the alleged financial stringency of the Claimant, which are again denied and disputed questions of facts."

10. Aggrieved by the aforesaid decision, NATRIP has preferred the

present appeal.

11. Mr Sanjay Jain, learned ASG appearing for NATRIP contended that

the financial condition of IVRCL was precarious and that winding up

petitions against IVRCL have been admitted. He submitted that in the

circumstances, it was necessary for the Tribunal to have considered

NATRIP's application on merits. He submitted that NATRIP had established

that IVRCL was debt ridden and not in a position to meet its liabilities and

therefore, an order for securing the amount in dispute ought to have been

passed. He referred to the decision of a Coordinate Bench of this Court in

Gatx India Pvt Ld. v. Arshiya Rail Infrastructure Limited & Anr: 216

(2015) 216 DLT 20 and on the strength of the said decision contended that

the fact that IVRCL‟s financial condition was precarious would be sufficient

for directing IVRCL to provide a security for the counter claims preferred

by NATRIP. He submitted that it was not necessary for NATRIP to allege

that IVRCL was siphoning of its funds or alienating its assets, in order to

succeed in its prayer for securing its counter claims. He submitted that even

if the financial incapacity of IVRCL was caused for reasons beyond its

control, the award that would follow would be impossible to enforce; and,

therefore, it was necessary that NATRIP be secured immediately without

awaiting the publishing of the award.

12. Dr Amit George who appeared for IVRCL on advance notice,

countered the contentions advanced by Mr Jain. He submitted that almost all

counter claims made by NATRIP were in the nature of damages and

indisputably NATRIP would not be entitled to such claims if the Tribunal

found that the termination of the contract was wrongful or that the delay in

execution of the project was not caused by IVRCL. He further submitted

that NATRIP had filed the application for securing the counter claims only

with a view to pressurise IVRCL. He handed over the copy of the minutes of

the proceedings of the 36th hearing of the Tribunal held on 30.07.2016 which

indicated that the Tribunal had scheduled hearings on 26.08.2016,

27.08.2016 and 29.08.2016 as well as 19.09.2016, 20.09.2016 and

21.09.2016 for hearing the final arguments on behalf of NATRIP. However,

on the insistence of NATRIP's counsel, the dates fixed in August 2016 were

cancelled. He submitted that on one hand NATRIP was insisting for urgent

orders for securing its counter-claim and on the other hand was delaying the

conclusion of the proceedings before the Tribunal by seeking adjournments.

He also relied on the decision of the Supreme Court in Raman Tech. &

Process Engineering Co. and Anr. V. Solanki Traders: (2008) 2 SCC 302

in support of his contention that an order for providing security could not be

granted unless the party seeking such relief had established a good prima

facie case and further established that the other party was attempting to

dispose of properties with the intention of defeating the decree that may

follow.

13. I have heard the learned counsel for the parties.

14. At the outset, it is necessary to observe that apart from claiming that

the financial condition of IVRCL is precarious, NATRIP has not urged any

other reason for seeking an order for securing its counter claims. Thus, the

only controversy that needs to be addressed at this stage is whether an order

directing a party to secure the amount in dispute can be issued only for the

reason that the said party is in financial distress and consequently the award

that follows may be impossible to be enforced?

15. Before proceeding further, it would be necessary to refer to the

relevant extract of Section 9 of the Act, which reads as under:-

"9. Interim measures, etc. by Court.-- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court:--

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:--

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it."

16. As is apparent from the plain language of the opening words of

Section 9(1) of the Act, a party may apply to the court for any of the reliefs

as set out in clauses (i) and (ii) above. However, the power of the court to

grant relief is indicated in the last line of Section 9(1) of the Act; that is, the

court has the same power for making orders as it has for the purpose of, and

in relation to, any proceedings before it. In Firm Ashok Traders and Anr. v

Guurmukh Das Saluja and Ors.: 2004 (3) SCC 155, the Supreme Court

explained as hereunder :-

" The reliefs which the Court may allow to a party under clauses

(i) and (ii) of Section 9 flow from the power vesting in the Court exercisable by reference to "contemplated", "pending" or "completed" arbitral proceedings. The Court is conferred with the same power for making the specified orders as it has for the purpose of and in relation to any proceedings before it though the venue of the proceedings in relation to which the power under Section 9 is sought to be exercised is the Arbitral Tribunal."

17. It is also clear from the opening sentence of section 9(1)(ii) of the Act

that the measures that can be ordered are "interim measures of protection".

It, plainly, follows that the principles that would be applicable for grant of

orders under section 9(1)(ii) of the Act would be the principles that may be

applicable to grant of such orders as are applicable to proceedings before the

Court. An order for securing the amount claimed prior to an arbitral award is

essentially in the nature of attachment before judgement and thus, the

principles as applicable for grant of such orders in proceedings before the

Court - that is, as applicable under Order XXXVIII Rule 5 of the Code of

Civil Procedure, 1908 (hereafter „the CPC‟) - would be equally applicable

for grant of relief under Sections 9(1)(ii)(b) or 17(1)(ii)(b) of the Act (as

amended by Act 3 of 2016) prior to the publishing of the arbitral award. In

Rite Approach Group Ltd. v. Rosoboronexport: 111 (2004) DLT 816,

Global Company v. M/s National Fertilizers Ltd.: AIR 1998 Delhi 397 and

Gatx India Pvt Ld. (supra), this Court held that it would take guidance from

the principles given in Order XXXVIII Rule 5 of the CPC for grant of orders

under Section 9 of the Act.

18. It is also well settled that the granting of orders under section 9 of the

Act are discretionary in nature and equitable considerations would apply for

grant of such orders. Thus, orders as prayed under section 9(1) of the Act

would be granted only if it is necessary and equitable.

19. In Raman Tech. & Process (supra), the Supreme Court explained that

the object of order XXXVIII Rule 5 of the CPC was to prevent any

defendant from defeating the realisation of the decree that may be ultimately

passed in favour of the plaintiff by either disposing of or removing assets

from the jurisdiction of the Court. The relevant extract of the said decision

is extracted below:-

"4. The object of supplemental proceedings (applications for arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers) is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 CPC in particular, is to prevent any defendant from defeating the realization of the decree that may ultimately be passed in favour of the plaintiff, either by attempting to dispose of, or remove from the jurisdiction of the court, his movables. The Scheme of Order 38 and the use of the words "to obstruct or delay the execution of any decree that may be passed against him" in Rule 5 make it clear that before exercising the power under the said Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfied that the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well-settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. Equally well settled is the position that even where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able

to satisfy that he has a prima facie case.

5. The power under Order 38 Rule 5 CPC is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the Rule. The purpose of Order 38 Rule 5 is not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilize the provisions of Order 38 Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. Instances are not wanting where bloated and doubtful claims are realised by unscrupulous plaintiffs, by obtaining orders of attachment before judgment and forcing the defendants for- out-of court settlements, under threat of attachment."

20. In order for the court to exercise its powers under Order XXXVIII

Rule 5 of the CPC, it is necessary that twin conditions be satisfied. First, that

the plaintiff establishes a reasonably strong prima facie case for succeeding

in the suit; and second, that the court is prima facie satisfied that the

defendant is acting in a manner so as to defeat the realisation of the decree

that ultimately may be passed. The object of Sections 9(1)(ii)(b) and

17(1)(ii)(b) of the Act is similar to the object of order XXXVIII Rule 5 of

the CPC. The Arbitral Tribunal while exercising powers under Section

17(1)(ii)(b) of the Act or the Court while exercising power under Section

9(1)(ii)(b) of the Act must be satisfied that it is necessary to pass order to

secure the amount in dispute. Such orders cannot be passed mechanically.

Further, the object of the order would be to prevent the party against whom

the claim has been made from dispersing its assets or from acting in a

manner to so as to frustrate the award that may be passed.

21. In the present case, there is no allegation that IVRCL is dispersing its

assets or acting in a manner so as to frustrate the enforcement of the award

that may be passed. Thus, on the application of principles as embodied in

Order XXXVIII Rule 5 of the CPC, no order for securing NATRIP can be

passed.

22. Further, if the financial state of IVRCL, as pleaded by NATRIP is

accepted to be correct, it is apparent that IVRCL would also be unable to

provide the security as prayed for by NATRIP. NATRIP claims that three

winding up petitions have been admitted against IVRCL as IVRCL has been

unable to pay its debts. If the same is correct, then it is obvious that IVRCL

would be unable to provide security or bank guarantee for the sums claimed

by NATRIP. It follows from the above, that it is almost certain that IVRCL

would not be in a position to comply with an order to provide security for

the counter claims preferred by NATRIP. In the given facts, such an order

would debilitate IVRCL‟s ability to pursue its claims against NATRIP. An

interim protection for one party cannot be granted at the cost of imposing an

onerous condition on the other and thus, rendering the other party in a

hapless condition.

23. It is relevant to bear in mind that if IVRCL is liable to be wound up as

is urged by Mr. Jain, then NATRIP would have to stand as one amongst

other unsecured creditors of IVRCL for recovery of its dues; NATRIP

cannot by obtaining an order under section 17 of the Act seek to place itself

in a better position than the other creditors.

24. The contention that financial distress of a party can be a sole ground

for directing that party to secure a claim of unadjudicated damages as

claimed by the other party is, in my view, bereft of any merit.

25. The reliance placed by Mr Jain in the case of Gatx India Pvt Ld.

(supra) is misplaced. In that case, the petitioner had made a claim for lease

rent of rakes as well as for liquidated damages. Since in that case, the

quantum of lease rent was ascertained and the petitioner had established the

case for lease rent, the Court granted an order directing furnishing of

security for the lease rent. However, as far as liquidated damages were

concerned, the Court denied the same because the liability on account of the

liquidated damages had not been ascertained. The said decision cannot be

read as an authority to mean that financial distress of a party would be

sufficient to require the said party to furnish a security.

26. In the present case, the arbitral proceedings are at the stage of final

arguments and considering the stage of the proceedings, the Tribunal has

declined to exercise its powers to pass an interim order. Orders under

section 17 of the Act are discretionary and the Tribunal has exercised its

discretion to not consider passing interim orders at the stage of final hearing.

I find no infirmity with the aforesaid view.

27. In view of the above, the present appeal is dismissed. The pending

application also stands disposed of.

VIBHU BAKHRU, J AUGUST 31, 2016 RK